## Entire Portfolio Rate of Return

### Entire Portfolio Rate of Return

I've always wondered if the planner provides output that shows the calculated rate of return for the entire portfolio.

For example, let's say I enter all of my rates of return for the different portions of the portfolio solely on the Additional Inputs screen. Those entries for the Tax Deferred portion of the portfolio are a 9.6% return with a standard deviation of 15.2% and a return of 8.7% with a standard deviation of 13.4%. Where would I find the output for the overall portfolio given these assumptions?

When I run a simulation from the main screen and then click Show All Runs, I do see a column of the resulting output labeled Geometric Mean Return. In this case, the result is 7.9%. Is this intended to reflect the return of the overall portfolio? It seemed low since it was lower than the lowest rate of return for any portion of the portfolio, but then I realized it's likely taking the standard deviation into effect.

If the geometric mean does reflect the return of the overall portfolio, how is it calculated? If it doesn't reflect the return of the overall portfolio, then what does it reflect?

For example, let's say I enter all of my rates of return for the different portions of the portfolio solely on the Additional Inputs screen. Those entries for the Tax Deferred portion of the portfolio are a 9.6% return with a standard deviation of 15.2% and a return of 8.7% with a standard deviation of 13.4%. Where would I find the output for the overall portfolio given these assumptions?

When I run a simulation from the main screen and then click Show All Runs, I do see a column of the resulting output labeled Geometric Mean Return. In this case, the result is 7.9%. Is this intended to reflect the return of the overall portfolio? It seemed low since it was lower than the lowest rate of return for any portion of the portfolio, but then I realized it's likely taking the standard deviation into effect.

If the geometric mean does reflect the return of the overall portfolio, how is it calculated? If it doesn't reflect the return of the overall portfolio, then what does it reflect?

### Re: Entire Portfolio Rate of Return

I had to look at the code to see what happens with geometric mean when you use separate returns. It turns out, when separate returns are used, the geometric mean only covers the growth of the taxable portfolio. It doesn't include any calculations for the returns from the other two portfolios.

The geometric mean is computed by maintaining a separate variable inside the simulation called "growthOfOneDollar." The growthOfOneDollar variable is sort of a separate hypothetical portfolio balance that starts at $1 and grows throughout the life of the plan based on the random portfolio return chosen for each year of the plan. The geometric mean can be easily derived from the ending value of this growthOfOneDollar variable. Then, the geometric means from each of the 10,000 portfolio runs are averaged to produce an average geometric mean.

Hope that makes sense, but feel free to ask any follow ups...

The geometric mean is computed by maintaining a separate variable inside the simulation called "growthOfOneDollar." The growthOfOneDollar variable is sort of a separate hypothetical portfolio balance that starts at $1 and grows throughout the life of the plan based on the random portfolio return chosen for each year of the plan. The geometric mean can be easily derived from the ending value of this growthOfOneDollar variable. Then, the geometric means from each of the 10,000 portfolio runs are averaged to produce an average geometric mean.

Hope that makes sense, but feel free to ask any follow ups...

### Re: Entire Portfolio Rate of Return

Thank you for the response, Jim. It does make sense, but based on the explanation and unless you disagree, it appears that it’s not really an accurate performance measurement that can be used even for just the taxable portion of the portfolio.

Unless I’m missing something, there doesn’t seem to be a way to derive a rate of return for the overall portfolio when separate rates of return are entered for different portions of the portfolio and, furthermore, applied over periodic intervals throughout the plan’s time horizon. When I export all of the detailed data, do you know of a way that I can use certain growth numbers that may be contained in any of the output as part of a rate of return calculation for each year of the plan? As you’re aware, the output shows “Various” for the rate of return for each year when a detailed run is output when separate rates of return are entered.

Unless I’m missing something, there doesn’t seem to be a way to derive a rate of return for the overall portfolio when separate rates of return are entered for different portions of the portfolio and, furthermore, applied over periodic intervals throughout the plan’s time horizon. When I export all of the detailed data, do you know of a way that I can use certain growth numbers that may be contained in any of the output as part of a rate of return calculation for each year of the plan? As you’re aware, the output shows “Various” for the rate of return for each year when a detailed run is output when separate rates of return are entered.

### Re: Entire Portfolio Rate of Return

You're right that the reporting on separate returns is lacking. The capability was added after-the-fact in response to user requests, so I made some simplifications/trade offs to get the feature in there.

### Re: Entire Portfolio Rate of Return

No problem at all. I’ll see if there’s a way I can work with the existing data output to calculate a reasonably accurate number for each year and the entire time horizon.

Thanks!

Thanks!

### Re: Entire Portfolio Rate of Return

I can't see a way to get there with the info that's available.

If your goal is to verify/explore what overall returns you're getting, you could do an experimental setup where you change the inputs so you can calculate geometric means for each of the sub portfolios. To do this, save a copy of your plan, then set the starting values of each portfolio to $100, set the inflation rate to 0, the tax rates to 0, and remove/disable any other plan cash flows (on main sheet and in additional inputs). Then run the plan with your additional inputs separate return entries still enabled.

You should be able to use the median yearly/ending portfolio values to track the returns the simulation is getting for each of the three sub-portfolios.

### Re: Entire Portfolio Rate of Return

Conceptually, that works. If it wasn’t for the impact of cash flows in and out of each portion of the overall portfolio, I’d probably be able to rely on that. But since the nature of cash flows is quite cyclical (accumulation vs. withdrawal stages) across the life of the plan for all three types of the sub portfolios and can affect each portion’s percentage of the overall portfolio, it can have a significant enough of an impact on the return of the overall portfolio. This particularly holds true during pre and post RMD periods when determining from which accounts, with very different asset allocations because of tax efficiency, assets are to be withdrawn.

You are correct. Another look at the availability of data convinced me that the ability of using Excel to manually calculate an overall portfolio return with separate entries for the sub portfolios while accounting for cash flows isn’t there.

No worries. It’s not that big of a deal. I’m not the least bit concerned about the accuracy of the returns that the plan calculates for each of the sub portfolios. I’m doing a plan for a friend and as part of the output, I was trying to show annual rates of return of the entire portfolio as well as the entire portfolio’s average rate of return over the entire time horizon of the plan.

You are correct. Another look at the availability of data convinced me that the ability of using Excel to manually calculate an overall portfolio return with separate entries for the sub portfolios while accounting for cash flows isn’t there.

No worries. It’s not that big of a deal. I’m not the least bit concerned about the accuracy of the returns that the plan calculates for each of the sub portfolios. I’m doing a plan for a friend and as part of the output, I was trying to show annual rates of return of the entire portfolio as well as the entire portfolio’s average rate of return over the entire time horizon of the plan.

### Re: Entire Portfolio Rate of Return

One last thing.

I'm assuming you've already set up the detailed view window to show all of the possible columns.

Just in case you haven't, this is done by selecting the "show more detail" radio button in the detailed view, then right clicking on any column header and selecting "show all columns."

You also can export the entire table to excel by right clicking on any cell in the table and selecting copy to clipboard or export.

I'm assuming you've already set up the detailed view window to show all of the possible columns.

Just in case you haven't, this is done by selecting the "show more detail" radio button in the detailed view, then right clicking on any column header and selecting "show all columns."

You also can export the entire table to excel by right clicking on any cell in the table and selecting copy to clipboard or export.

### Re: Entire Portfolio Rate of Return

Yes. I’ve done all of that, but thank you for the suggestion.

I’ve become quite a “power user” of the planner over the years and I’m always amazed of the job and the updating that you’ve done with it. In addition to using all of the planner’s features, I’ve found that the real analysis comes with the ability to export the data down to the most granular of levels into Excel to really perform some incredible analysis. As a matter of fact, I’ve gone as far as exporting the Additional Input tables to quickly perform troubleshooting tasks when trying to find errors in some of the Additional Inputs when something doesn’t look right in a run that I’ve exported into Excel. Plus, they serve as great “appendices” when trying to easily show and explain to someone some of the details and assumptions that are baked into the plan.

Usually when I reach out to you for a thought on an issue, it’s after I’ve scrubbed all of the detail that I can possibly think of to find the solution. Usually you end up confirming what I already suspected, but on occasion, you’ve pointed me in a direction that I hadn’t thought of.

Thanks for your help. If something does happen to come to mind on how I could calculate the overall portfolio’s return, please let me know.

I’ve become quite a “power user” of the planner over the years and I’m always amazed of the job and the updating that you’ve done with it. In addition to using all of the planner’s features, I’ve found that the real analysis comes with the ability to export the data down to the most granular of levels into Excel to really perform some incredible analysis. As a matter of fact, I’ve gone as far as exporting the Additional Input tables to quickly perform troubleshooting tasks when trying to find errors in some of the Additional Inputs when something doesn’t look right in a run that I’ve exported into Excel. Plus, they serve as great “appendices” when trying to easily show and explain to someone some of the details and assumptions that are baked into the plan.

Usually when I reach out to you for a thought on an issue, it’s after I’ve scrubbed all of the detail that I can possibly think of to find the solution. Usually you end up confirming what I already suspected, but on occasion, you’ve pointed me in a direction that I hadn’t thought of.

Thanks for your help. If something does happen to come to mind on how I could calculate the overall portfolio’s return, please let me know.

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